Today in translation – online platforms (Google, Apple, Facebook, Amazon + Baidu, Alibaba, Tencent), wallets, cryptocurrencies and new services. Let’s start!
Area 6: Online Continents
This part is about the take-off of online platforms (GAFA – Google, Apple, Facebook, Amazon and BAT – Baidu, Alibaba, Tencent) in terms of social interaction and commerce. Occupying an increasingly large part in every aspect of the consumer’s life, these platforms offer their own special payment solutions that are already integrated into the respective platforms, as shown in Figure 7.
Globalization provides consumers with the ability to pay beyond their geographic boundaries. Online platforms offer services that simplify connecting to payment systems outside the buyer’s region (for example, Alipay offers its e-wallet to non-Chinese customers to simplify financial transactions in Chinese markets).
The presence in every aspect of the daily life of the consumer provides a large flow of data, allowing you to create complex payment solutions for the needs of the client outside the normal buying process. The provision of payment services to its customers, in turn, gives the platform greater access to customer data and expands its ability to provide new additional services.
Figure 7 – What position will online platforms take in the financial system and how it will affect the role and relevance of traditional payment organizations
Area 7: Payment Solutions (Wallets)
Earlier, area 7 included wallets whose purpose is to simplify shopping. Recently, new payment solutions appeared on the market, and wallets have new facets: they offer services for further customer support that are not related to payments.
Initially, the growth of P2P payments was relatively slow. Consumers didn’t really want to pay for this type of service, comparing it with payments through OBEP or payment platforms, which are considered almost free. However, the popularity of P2P payments is growing as service providers reduce their own fees. This effect is achieved due to the fact that as a marketing move, suppliers take on transaction costs and thereby stimulate the transition of users to a new platform.
Towards a profitable business model, service providers are striving to move their free B2C solutions to the C2B area by offering paid services to business customers. One example is Venmo’s American P2P payment solution (owned by PayPal), which began its work by absorbing transaction costs to create a user base. Now the company receives income from purchases in approved online stores, from which a commission is charged.
PSD2 allows consumers to initiate a payment from a licensed third-party application. This model is developing in the wallet direction, where in one application the buyer can pay from different accounts. However, the lack of standardization of PSD2 interfaces between banks at the European (and often national) level slows down the work of service providers wishing to offer such “wallet” solutions for payment accounts, as it increases the cost, complexity and implementation time to ensure high coverage. In attempts to compensate for all these difficulties, various technical service providers appear who care about the possibility of such a connection.
Recent developments in the field of wallets are expressed in the merger of payments with services not related to them, such as storing loyalty cards and discount cards in the application (for example, OK and Reward Cards). This further simplifies the consumer experience beyond payments. Such developments in the field of non-payment services are disclosed in the 9th area.
Figure 8 – Payment solutions go beyond card payments while simplifying processes
Area 8: Alternative Payment Infrastructure
The evolution of the payment landscape, described in areas 2–7, has always considered the traditional infrastructure from area 1 as the basis for innovation. Currently, the payment infrastructure itself is an object of innovation that is facing potential threats. While traditional players are giving birth to new infrastructure initiatives, such as instant payments, and exploring the possibilities that technologies like blockchain can bring to the financial system, non-traditional players are also exploring infrastructure development, which can greatly affect the familiar financial system.
Non-traditional players present alternatives to the existing payment infrastructure, creating a system in which service providers exchange valuable information on behalf of the payer and the recipient through various payment infrastructures (as shown in Figure 9). All this happens for several reasons: for example, to reduce dependence on traditional financial players, capitalize on existing features and increase the speed of innovation.
Figure 9 – Infrastructure is managed by “service providers” in the field of payer and recipient (in contrast to traditional issuers and acquirers)
An alternative payment infrastructure based on blockchain and cryptocurrency has been around for several years. Sometimes it is useful (for example, with the recent hyperinflation of the Venezuelan national currency), but its universal adoption as a payment mechanism for everyday purposes is still moving slowly. A fresh example is the Libra consortium, an alternative payment infrastructure that is currently under the scrutiny of governments and central banks due to its destructive potential for the traditional financial system (along with security and governance issues). At the same time, regulators are also developing their own projects in the field of alternative infrastructures. So, in response to the introduction of Libra, the National Bank of China is accelerating the development of the digital renminbi (DECP). DECP offers “controlled” anonymity and functionality to replace paper money. Opinions differ on the viability of alternative payment infrastructures and the demand for them, and it is expected that in the near future we will see the real potential of such infrastructures.
Area 9: Alternative Services
Traditional payment infrastructure is the foundation of many payment services. But in the end, all this diversity boils down to a traditional payment like SCT or card payment.
In search of new business models, financial institutions have found new uses for their payment infrastructure. Their interconnected network of reliable and regulated organizations specializing in the exchange of structured data is useful for various types of services besides payments.
Examples of how the existing payment infrastructure can be used for other applications and services are the transfer of personal data for registration or login through third-party applications (for example, BankID schemes), as well as the combination of payments with other data streams, for example, electronic billing or loyalty and discount schemes. Other alternative services include lending services offered to both buyers (e.g. Payu) and companies (e.g. PayPal). Using buyer and seller payment history for profiling and scoring, players like Amazon and Paypal can provide instant lending services to facilitate payment transactions.
Speeding up these processes, PSD2 simplifies access to the payment infrastructure for non-financial institutions and provides free integration of payment systems with alternative services.
Figure 10 – The emergence of alternative services in addition to existing services and infrastructure
A look into the future
The integration of payment services with alternative structures and data sources is the result of the development of interconnections in the digital world. Despite the fact that this technology can hardly be called new, the placement of financial system services through the API has gained great popularity in recent years. Real-time automated access to data and services has significantly improved the products and services of both financial and non-financial players.
PSD2 is a key factor in the development of several of the areas described. Recent years for PSD2 have passed in discussions about technological standards and have led to a delay in the implementation of regulatory technical standards. A key theme of PSD2 is “Strong Customer Authentication” (SCA), which affects a variety of customer scenarios. The next decade will show whether the innovative potential of PSD2 will be realized.
The financial system in Europe is still heavily dependent on traditional card schemes and is under increasing pressure from technology giants (GAFA and BAT) trying to expand their influence. The global payment landscape is indeed undergoing a transformation. Major technological advances, regulatory reforms, and ever new initiatives coming, in particular, from global digital platforms, have led to significant changes. These events put significant pressure on banks and payment acceptance services, forcing them to take retaliatory measures.
Finally, one interesting recent event, the development of which is worth watching, is the launch of PEPSI (Pan-European Payment Systems Initiative). PEPSI is an initiative to develop a pan-European retail payment solution that can compete with card schemes and technology giants. It is supported by the twenty largest European banks, as well as the ECB. In the future, this initiative may become an important event that will affect the further development of the payment landscape. Nevertheless, an important success factor will be whether the involved players want to organize and collectively approach the creation of a pan-European alternative for internal (card) payment schemes throughout Europe.